Wednesday, 11 February 2015

Compensation Orders Following Disqualification

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

A further proposal within the Bll is the power of the Court to make a Compensation Order following the disqualification of a director, whether by Court order or upon providing a disqualification undertaking. It is also proposed that a director could offer a compensation undertaking, in a similar manner as disqualification undertakings are currently offered by former directors.
This compensation regime, which annexes to the disqualification regime, will provide added complications for directors, who in a large number of circumstances have suffered together with the failure of the company either in respect of their own capital investment or alternatively as a result of guarantees they provided or charges over properties they own.
Should a compensation undertaking not be offered, then the Secretary of State may apply for a compensation order within 2 years from the date when the disqualification order was made or within 2 years from the date when the disqualification undertaking was accepted.
It is not uncommon for a former director to face bankruptcy proceedings as a result of their company’s failure and the introduction of applications for compensation orders may lead to further, or post bankruptcy, liabilities.
Accordingly, as a result of the various changes proposed, directors of insolvent companies could be bearing the consequences of failure for up to 9 years following the commencement of the insolvency proceedings.

At Francis Wilks & Jones we can advise on all of these risks.